Coles wants to punt pubs but won't give up the drink altogether

Coles is working on ways to sell its portfolio of pubs while maintaining ownership of its lucrative bottle shop network - a key obstacle to cleansing its business of poker machines.

Australia’s two largest supermarkets have presented Queensland’s archaic liquor licensing laws - which say a business must own licensed venues in order to operate retail liquor stores - as a reason for owning poker machines, which they says subsidise otherwise unviable pubs.

Coles is looking to get out of its pokies portfolio.Credit:Jemma Wallace

Wesfarmers, the conglomerate that owns Coles, has said it is a "reluctant owner" of poker machines because of the social harm they cause, and is looking to sell its pubs and poker machine business ahead of Coles being spun-off as an independent company.

The company is reportedly working on a deal to sell the 90 or so pubs housed within Coles' Spirit Liquor to pub group The Australian Venue Company, which is 80 per cent owned by private equity giant KKR.

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Both parties decline to comment on Wednesday.

But it is understood Coles intends to hold onto its Liquorland, First Choice Liquor and Vintage Cellars bottle shops, and is working through ways to get around Queensland's laws to make this possible.

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Coles' liquor sales make up about 10 per cent of its gross annual sales, Morgan Stanley estimates, or close to $4 billion.

The supermarket has about 3000 poker machines in venues in Queensland and South Australia, which are estimated to take in about $185 million a year.

Asked about the future of its pubs in February, Wesfarmers' managing director Rob Scott said the company was "considering our options around future ownership models of that business".

Matthew Jones, general manager of Brisbane-based licensing consultants Liquor and Gaming Specialists, said Coles receiving the benefit of operating bottle shops in Queensland without owning pubs "would appear to be quite contrary to the fairly clear intentions expressed in the legislation".

“However, when you put it all in the normal commercial context - the way deals are done and the way these things can be structured - it might be challenging, but there are ways it can be possibly achieved," Mr Jones said.

Wesfarmers managing director Rob Scott.Credit:Philip Gostelow

“You could imagine a situation where Coles ostensibly has parted with the pubs and the bottle shops but in the background there was some other kind of deal that they were still receiving the benefit from the operations of the bottle shops."

Chad Slater, joint chief investment officer at Morphic Asset Management, which has screened out Wesfarmers on "environmental, social and governance" grounds, said an assessment of a "pokies-free" Coles as a potential investment would look at whether it had only "technically" divested.